merrill lynchThe brokerage arm of Bank of America Corp. and most other big firms currently prohibit financial advisers from working as fiduciaries when advising companies on setting up and operating 401(k) and other retirement plans because of the increased potential for liability.Merrill's shift reflects the likelihood that the U.S. Department of Labor will adopt a proposal making it harder for advisers to escape assuming a fiduciary standard. If that occurs, advisers fear losing accounts to independent advisers willing to assume the higher standard of care.
"We are actively exploring ways to enter the 401(k) investment consulting market as fiduciaries," said Andrew Sieg, head of retirement services for Merrill Lynch. He declined to elaborate.Under existing Labor Department regulations, the fiduciary obligation kicks in when five conditions are met. Critics say it is relatively easy for brokers to sidestep the trigger by avoiding giving "individualized and ongoing" advice and by skirting acknowledgments by both sponsor and adviser that the advice may influence investment decisions.The proposed rule closes the loopholes, imposing the fiduciary obligation even if advice is given on a one-time basis and removing the requirement for a mutual understanding.'CAN'T COMPETE'Firms that continue to insist that brokers avoid triggering the standard will relegate them to issuing perfunctory advice, some brokers fear."I can't compete when someone's willing to be a fiduciary," said a Merrill Lynch adviser, who spoke on condition of anonymity. "It's our biggest Achilles' heel."The securities industry and some Congressmen have been lobbying to modify the Labor Department proposal.
claiming that brokers will withhold education about retirement planning for fear of triggering the fiduciary standard.However, the proposal--which comes at the same time that the Labor Department is requiring more disclosure from brokers and fund companies about their fees--is likely to be adopted without substantive changes, according to lawyers and industry executives.Merrill's change of policy is expected to apply primarily to advisers to large plans, means the brokerage firm and some advisers may have to forego revenue-sharing fees paid by funds when plan participants choose them as retirement investments.Advisers are prohibited under the fiduciary standard from recommending investment vehicles simply because they generate greater compensation to themselves or their firms than comparable products.
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